The end of 2023 saw the real estate residential home values in the San Fernando Valley (Los Angeles) reflect an aggregate average sales price of $875,000, 4% higher than the end of 2022. That doesn’t give the full story of the year though.
Most of 2023 was in the throws of interest rate increases and Quantitative Tightening from the Federal Reserve that started in March of 2022. The chart of the Federal Reserve Rate shows the parabolic their overnight rate from 0% to 5.375%. The rate has been kept stable since July 2023. Hints from the Federal Reserve indicate they are done with rate increases, but need more data conveying the inflation levels will be solid at their 2% target before they start dropping their rate, or easing up on their selling off the bonds accumulated during the Quantitative Easing. Theoretically, the Fed should start dropping their rates mid-2024.
In anticipation of the inflation level moderating and the Federal Reserve dropping their rate, the 30 Year Fixed Rates started dropping from October 2023 peak of over 8%, down to the mid-6 % range. The lower rate helps potential buyers’ affordability ratios.
Inventory is still historically low, and homeowners who purchased or refinanced while the rates were 3%ish aren’t motivated to sell and purchase again with a rate twice as high as their previous mortgage. Affordability will be an issue while rates stay high, but the lack of inventory will support prices.
Life goes on, and buyers are over time getting acclimated to the higher rates. Lower rates are always preferred, but the mid-6% range is the historic average.
The numeric chart shows the pricing in dollars going back to 1959.
The Linear View chart shows graphically the numeric values with each plot point based on the actual dollar value.
The Logarithmic View chart is a better illustration of the historical changes in value. Each plot point is derived by the actual “percentage” change of value, relative to the previous year.
Long-duration property value appreciation has been typical for the region. Many prognosticators say the property values are not sustainable. Ultimately it’s all about supply and demand.
Let’s review a little history that correlates with the chart’s value fluctuations…
In the early 1980s there was a Savings and Loans Crisis. That was the first major banking crisis since the 1920’s Depression. 1/3 of the S&Ls failed as the government deregulation tried to financially prop up the Thrifts during the slow growth ’70s, and the S&Ls got into excessive lending in areas they weren’t skilled at (commercial property and construction loans), while they weren’t well-capitalized. Mortgage lending became very tight, and over construction of new properties weighed on property values. San Fernando Valley property values didn’t drop as much as they were stagnant for several years.
Because of local regulatory and tax elements, starting in the late 1980s the regionally strong aerospace manufacturing complex started moving away from the region/state. The San Fernando Valley was essentially the epicenter of the national recession in the early 1990s. Right when the local economy was starting to stabilize, the Northridge earthquake hit in 1994. Because of the recession, property values had dropped, and the property owners that were already upside down on their property values extenuated the foreclosure issues.
Throughout the early 2000’s mortgage underwriting and credit requirements were too easy. It hit a wall in 2007, when over-leveraged borrowers and lenders, and the secondary mortgage market meltdown brought on the “Great Recession”. The pendulum swung the other direction and mortgage money was more difficult to get. Foreclosures and short sales filtered through the system for the next six years.
The US is about 5 million houses underbuilt. The lending regulations and loan underwriting has been tight, and banks are historically high in reserves. The Covid low rate feeding frenzy led to a decade’s worth of appreciation in a couple of years. Millennials are entering the peak homebuying age so demand will remain elevated for decades. Now the gov’t is trying to push for more “affordable” housing development, but anti-development attitudes CEQA, permit costs, time to develop, skilled labor shortage, etc. makes it very tough to build.
If you are in the Los Angeles area, and have any questions or real estate sales or financing needs, feel free to contact me
Ron Henderson GRI, SRES, SFR, RECS, CIAS
President/Broker
Multi Real Estate Services, Inc.
Gov’t Affairs Chair – California Association of Mortgage Professionals (2017-2018)
Chairman – OutWest Marketing Meeting (Real Estate Education)
BRE #00905793 NMLS #310358
www.mres.com
ronh@mres.com
Specialist in the Art of Real Estate Sales and Finance
Real Estate market, mortgage rates, Los Angeles, San Fernando Valley, Conejo Valley, Simi Valley, Woodland Hills, West Hills, Calabasas, Chatsworth
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